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China’s troubled state-owned steelmaker Sinosteel has agreed terms for its debt-for-equity swap plan after two years of negotiations, marking the first such restructuring deal involving a central government-owned enterprise.

Sinosteel has signed agreements with six Chinese state-owned banks including Bank of China and Bank of Communications in regards to restructuring debt through a debt-for-equity swap, according to a statement released by the Bank of China on its website on Friday.

We still need more details about the deal to tell if banks, the debt holders, are suffering losses in the plan

The plan will involve more than 60 billion yuan (US$8.70 billion) of debt, including principal and interest, which will be divided into two parts. One part will be kept by financial creditors, while for the rest, Sinosteel will set up a stake-holding vehicle to issue convertible debt to creditors in exchange for existing debt. Creditors will then have the option to swap the convertible debt into equity under certain conditions.

“We still need more details about the deal to tell if banks, the debt holders, are suffering losses in the plan,” said Liao Qiang, senior director of financial institutions ratings at Standard & Poor’s in Beijing.

Many analysts, including Liao, believe that the swap plan in the Sinosteel case came with government support.

“We still don’t know if Sinosteel has a feasible plan to improve its profiting capability, which is the key for debt-for-equity swap to work,” said another analyst on China’s corporate debts, who asked not to be named. “If they don’t, the plan only puts off the debt problem instead of solving it.”

Sinosteel defaulted on its debt for the first time back in September 2014 and by the end of that year the company, with its 72 subsidiaries, had total debts of over 100 billion yuan. Of this, 75 billion yuan was owed to more than 80 Chinese and foreign banks, mainland media outlet Caixin reported, citing data from the Chinese banking regulator.

Debt has emerged as one of China’s biggest challenges, with the total rising to 250 per cent of GDP last year. Chinese companies sit on US$18 trillion in debt, equivalent to about 169 per cent of GDP, according to data from the Bank for International Settlements.

The term ‘debt-to-equity swap’, meaning to swap the debt banks hold in underperforming companies for stock holdings, was raised by China’s premier Li Keqiang during the National People’s Congress in March and was hailed as a market-oriented means to reduce China’s rising leverage in the corporate sector. The high levels of debt are increasingly worrying global investors amid warnings it could trigger a banking crisis.

Also on Friday, Shanxi Coking Coal Group said it had signed a framework debt-to-equity swap agreement with China Construction Bank, involving two funds totalling 25 billion yuan.

Industrial and Commercial Bank of China, the country’s largest lender, also said on Friday it has signed a 10 billion yuan debt-to-equity swap with Shandong Gold Group.